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Paul Krugman - The Case for Super-Core Inflation

edited April 21 in Other Investing
I don’t have an opinion on this. Some on the board think highly of Krugman ... so thought I’d link it.

“It’s going to be a year of bottlenecks and blips” - NYT
-

Speaking of bottlenecks - Severe shortage of skilled / semi-skilled workers here. A mega-sized Walmart had only 1 cashier in the entire store last week. Called today about getting a bicycle ready for spring riding #@%**$. You need a reservation to take one in. Next opening May 18 ...

Where are the Wright Brothers when you need them?
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Comments

  • What a mess. Totally. A good friend likes to ride his bike for LONG distance day-trips. So I "hear" that. These days, if doing X or Y or Z is too difficult or complex or I have to wait too long for it, I just pass it by. I can do that in retirement. I can eat pecan pie for dinner, if I choose. The only deadline I worry about is making sure that my prescriptions don't run out. Simple is good. If you want to make me work too hard or pay too much to get your product or service, then I just don't need your product or service. Yesterday, we went out for lunch for the first time in ages. Ate outdoors, under their roof. Greek food. Delicious. Great service, good food. No hassle. Masks required everywhere, still. But you can't eat wearing a mask, so we were free of the mask for THAT enjoyable task. No rush, no reservation needed, no effort. Beautiful. UNCOMPLICATED.
  • edited April 21
    “ But you can't eat wearing a mask, so we were free of the mask for THAT enjoyable task. No rush, no reservation needed, no effort. Beautiful. UNCOMPLICATED.”

    Here you’re required to wear a mask in gyms. Try running laps around an indoor track (I did the other day) with a mask in place. Deep breathing sucks the mask against your face and you damn near suffocate,

    Far as the bike goes, it demands attention, but with temps still in the 30s up here, I can wait a few more weeks.
  • @hank: at the gym I was surprised to find the KN95 mask easier to use than a cloth or "blue" one that clings to the face and impedes breathing.
  • @BenWP - Thanks. I’ll take a look.
  • @hank : Is it possible that Uncle Wally cut the staff while raising the wages ?! Same thing in local Walmart, self checkout backed up three or four deep while 2 other checkouts going.
    @Crash : Glad to hear you got out for a nice meal. Uncomplicated . nice motto to live by.
    Later, Derf
  • I still avoid indoor exercise activities with other people - too many unknown risk. When the weather permits we bike everywhere for exercising. Can't wait when more people are vaccinated.
  • edited April 22
    Getting back to hank's post, I think that Krugman is right on, and that inflation in the immediate future is very likely to increase in unexpected ways due to many different factors, especially world production and distribution bottlenecks primarily caused by Covid-19.

    To me, the present incredible jumps in the cost of wood products essential to construction and home maintenance is especially unsettling, and a portent of more to come.
  • Not sure what Super Core Inflation means (I didn't read the article) but I've tried to set myself up for potential or maybe inevitable inflation over the next couple of years. As I look, I have about 12% of my self managed portfolio in inflation hedges; DBC, a broad basket of commodities, IAU gold, UDN, an inverse US dollar hedge and IVOL, TIPS with a special hedging sauce that seems to smooth the ride. Time will tell if these ETFs help my cause if inflation starts to rise significantly.
  • "To me, the present incredible jumps in the cost of wood products essential to construction and home maintenance is especially unsettling, and a portent of more to come."
    As Danielle Park (Toronto) often reminds her readers and listeners: Canada's main thing is to sell "rocks and trees" to the rest of the world. Still highly dependent upon natural resources to trade with the rest of planet Earth. Something to think about, but maybe not to chew on. Yux. ;)

  • I came across an article in Wed. WSJ where companies were paying tree producers not to cut their trees due to carbon credits they could use. Probably adding to cost of lumber.
    Derf
  • Howdy folks,

    First for brother Hank. Check around about masks. I see baseball players wearing them in the field, so there must be a way or type.

    Inflation. It's been interesting to watch the supply disruptions due to Covid but also the changes in demand. Lumber is impacted by both as are many other products and services. I anticipate that official inflation will be measurably higher going forward but the street inflation is going to hurt. Any of you good people been buying groceries over the past couple of weeks? For somethings, you can almost see the price changes. I buy chicken breasts at GFS and the bag went from 15.99 to 21.99 in the past 6 months.

    Shadow stats has real inflation running either 4 or 8 over the official CPI. You can like him or not, but we're all experiencing a much higher rate of inflation than the gov't suggests.

    http://www.shadowstats.com/alternate_data/inflation-charts


    Peeps getting their shots . . . or not. feh. 1. As more and more people are vaccinated without problems, many of the hesitant will get their shots. 2. More and more companies are starting to insist and some are offering incentives. 3. Final approval for the mRNA vaccines will give legal basis to a LOT of mandates. The military has about 33% that are hesitating. Er, only because it's an EUA. When it is approved, it's roll up your sleeves boys and girls. All of this should get us to 75-80%. Of the 20% antivax true believers, it's too bad but cripes, Darwin will take care of them. I believe the word is
    schadenfreude, suggests rono's 'bad wolf' side, as he giggles at Palin and Nugent.

    Employment and job vacancies and help wanted signs everywhere. Of course there are those that blame it on unemployment $, make working unattractive. Bad wolf suggests that if they were paid a living wage . . . That said, I'm curious about how many women (and men) between the ages of 18 and 40 are making more money with their onlyfans account than they would ever make at a restaurant or bar or any other job that pays under $20 an hour. Asking for a friend.

    All y'all stay safe and take care,

    and so it goes,

    peace and keep wearing the damn mask,

    rono
  • Whoa. Even dead chickens are dear. Jayzuz. I count myself very lucky here. Wifey and I have certainly downsized to come here, but I prefer that. Ironically, we are able to help out in ways I'd not anticipated. I guess life is like that. It's satisfying. Retirement. No silly hoops to jump through, again and again and again and again. And no deadlines--- apart from taxes. I could eat apple pie for dinner, if I want. Giggle. But I'll have to pay much more than expected for it. ..... But when it comes to home building or improvements or cars or gas or a REAL grocery bill, I am sure that @rono is correct. The picture is more negative than the gov't will ever admit.
  • I completely agree with rono, especially regarding food prices. Whatever it is that the government stats are counting, it surely isn't anything that we are using. The stuff that we are needing is heading in one direction: straight UP.
  • edited April 24
    Food and energy are excluded from core inflation because they're so volatile, up AND down. YOY comps would yoyo all over the place if they were included. (You wouldn't want the Fed trying to make monetary policy based on shorter-term swings.)

    Core gives a more accurate view of mid- and longer-term inflation.PK makes the point in the article; see the Fred graph he reproduced. The CPI is a better shorter term measure.

    Food prices, though, could still have plenty of room to head up. The ag etf DBA is still running in that direction; I assume it's got at least some correlation, with a lag, with grocery prices.
  • Food packaging keeps getting smaller and smaller, and the cost keeps getting higher and higher. Has anyone ever seen a loaf of bread get bigger for the same price? EVER???

    Sorry- in my observation the suggestion that food costs, on average, can increase but then go back down is pure BS.
  • edited April 25
    @Old Joe, did you look at the graph in the article? I think you're right, in the sense that energy is a lot more volatile than food and is most responsible for CPI swings. Just googling around a bit for that info, it does look like food at least since 1968 has been pretty much one-way.

    However, just an anecdote, I remember well several years back when dairy prices fell a lot in a short time and stayed there for a couple of years before rising, slowly, again. The happy shock was seeing the 1/2 gal organic milk we used to buy going from $3.50 to $3.00 from one shopping trip to the next - a 14% drop. Maybe something to do with price supports caused that, dunno.

    Best, AJ
  • edited April 25
    I can't read the article but if Krugman said that inflation is going to be way up, he will be wrong and not the first time, see (2016). I'm amazed he got the Nobel Memorial Prize.
    Let's talk inflation:
    The ANNUAL inflation may get to 3-4% in the next a few/several months because it's compared to last year meltdown. In Q4/2021 and on I don't see anything beyond 2.5-3% and for several months consistently.
    Remember, monthly CPI is relative to last month. If an item goes up 10% and next month stays the same then next monthly inflation for this item is zero.
    Example: Gas at the pump jumped about 20% YTD (similar for 12 months) but is flat for about a month now(link).

    We have been borrowing from the future for over 10 years already. In the years ahead it will get slower. The Fed welcome 2% (maybe 2.5%) long term inflation. Add to it big tech replacing jobs and improving processes + global competition, and you get tame inflation.
  • @FD1000 I’m amazed Krugman got the Nobel Prize and you didn’t, what with your superior economic and investment prognostication skills.
  • It's sad to see how his political biased clouded his judgment in 2016. Do you care to comment about that?

    I was able to read the article. I agree with Krugman, he basically says what I posted above.
  • ...seeing that guestimates for IBonds re rating on May 1st estimates for inflation variable rate going up to 3.54%?

    That's higher than it's been in ~ 10 years? I guess it makes sense...

    FWIW, I pay no attn to the propoganda and the esteemed columnists in the NYTimes. Right or wrong, I'll think for myself and not what others signal to me how I should think.

    Not for me, no thanks.

    Best,

    Baseball Fan
  • A passing question about inflation: was it not "through the roof" immediately after WW II? I have no idea, just conjecture. The total cost of the war was an absurd, uncountable amount. But we survived, and I think we are better off without swastikas flying overhead, or Tojo in charge, over in the other direction. Sadly, millions had to suffer under uncle Joe Stalin for years and years, afterwards.
  • A passing question about inflation: was it not "through the roof" immediately after WW II? I have no idea, just conjecture. The total cost of the war was an absurd, uncountable amount. But we survived, and I think we are better off without swastikas flying overhead, or Tojo in charge, over in the other direction. Sadly, millions had to suffer under uncle Joe Stalin for years and years, afterwards.
  • @Crash et al

    I assume all indicated data is accurate. Scroll down about 1/3 page for data list.

    U.S. inflation beginning 1929 by year with some clickable information points.
  • @catch22 Great! Thanks for that.
  • edited April 26
    Thanks Catch. What I’m wondering is whether the numbers displayed have been adjusted for changes to the method of computing CPI over that time?

    https://www.investopedia.com/articles/07/consumerpriceindex.asp

    As the linked article points out, some think recent changes to the CPI computation tend to understate actual inflation when compared with earlier standards.


    Numbers can lie and can also be made to represent whatever you want. IF we factor in the improvements to overall standard of living since the 30s, we might end up with negative inflation numbers. Does anyone want to go back to the time when homes were heated with coal that you shoveled into your furnace by hand? Cars got 10-15 mpg and lacked automatic trannies or AC? AM radio was the latest form of home entertainment?

    Above points to how hard it is to measure actual inflation when the things we take as “normal” or “necessary” keep changing. I do remember paying $2500 for an Apple 2e + green screen in the 80s. And $600 for a clunky dot matrix printer to go with it. 1980s technology can be had for much less today - if you can find it. So - is that how we should compute inflation?

  • thank god krug agrees w fd1k, thank god
  • edited April 26
    Krugman argues against the super-core inflation thesis. His title is somewhat of a straw man which he proceeds to knock down. To that end he agrees with Jay Powell that the bout of inflation we’re about to witness will be “transitory” (Powell’s word) and limited to those areas of the economy that were choked off by covid fears and restrictions (ie travel) or impacted by supply & supply chain disruptions (ie lumber).

    The well informed members here have chosen to expand the discussion beyond Krugman’s limited purview. All good ISTM. Some would say that the primary reason for putting their current (safe) dollars at risk in unpredictable - even precarious - markets is to protect their buying power against the ravages of inflation over extended periods.

    I hope my earlier remarks are not misunderstood. They represented neither a sounding of the rising inflation alarm siren, nor a call for complacency on the issue. They simply were an attempt to put the inflation numbers @Catch22 cited - going back to the 1930s - into some kind of perspective. As for changes in how CPI gets computed, those have received wide attention over the past several decades and are summarized in my earlier link.
  • edited April 26
    @FD1000 Krugman won his Nobel in 2008 for his contributions to New Trade Theory https://en.wikipedia.org/wiki/New_trade_theory, so I'm not sure why his political beliefs in 2016 have anything to do with the prize and that you should be amazed by it. Now can you explain why Kissinger deserved the Nobel for en-miring us in Vietnam and for inciting actions in places like Argentina many have described as those of a war criminal?

    https://newyorker.com/news/news-desk/does-henry-kissinger-have-a-conscience

    https://vox.com/2016/5/9/11640562/kissinger-pentagon-award
  • edited April 28
    LB,
    Can you explain why Obama got the Nobel Prize for peace?
    - Withdrew US troops and joked about ISIS, enabling the partial takeover of Syria and Iraq by Islamist radicals, with immeasurable consequences such as millions of refugees into Europe.
    - Helped remove Gadaffi from Libya, leading to anarchy and radicalization
    - Putin annex Crimea
  • edited April 28
    @FD1000 Again your timing is off. Obama won the Nobel in 2009. Putin annexed Crimea in 2014. Gadaffi died in 2011. And the stuff about Isis is hogwash and occurred in 2011. Obama won the award because despite America still being an incredibly racist nation some 400 years after the first slave ships arrived, he overcame great odds to become the first African American president. That by itself is an incredible accomplishment. Even today given some of the asinine comments I read online about him, I find it amazing he won--twice.
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